I. INTRODUCTION: Pay Your Bills!
As a general rule, it is always a good idea to pay your bills. It is particularly important to pay your legal bills. And I’m not just saying that because I work in the legal field. While it is true that the costs of legal services can be quite high, keep in mind that you are paying for services conducted by individuals who have been rigorously trained to deal with highly complex legal matters. They know what they’re doing. So what can happen if an individual fails to pay their legal bills? Under Minnesota law, attorneys are entitled to a lien on the property of a client who has failed to pay for the services rendered. This lien enables the attorney to repossess the client’s property in order to satisfy the unpaid legal fees. The statute states:
An attorney has a lien for compensation whether the agreement for compensation is expressed or implied (1) upon the cause of action . . . and (2) upon the interest of the attorney’s client in any money or property involved in or affected by any action or proceeding in which the attorney may have been employed . . . .
Minn. Stat. 481.13, Subdivision 1. Therefore, regardless of whether the agreement between the attorney and client explicitly established compensation terms or not, the attorney is authorized to claim a lien on the legal action as well as on any money or property involved in the legal action. As a result, even if the client wins a judgment, the attorney will be able to claim any recovery from the lawsuit in order to satisfy unpaid legal fees.
II. HOW THE PROCESS WORKS
For practicing attorneys, it will be extremely beneficial to become familiar with the procedure for obtaining an attorney’s lien. The process is not overly difficult, and following the proper procedure can result in significant rewards. The following information, therefore, will be particularly helpful to attorneys who are attempting to obtain and/or execute upon attorney’s liens, but will also be informative to clients who would like to educate themselves on how the process works.
A. Client Screening
Attorneys and law firms alike should consider getting into the habit of screening their clients before agreeing to accept their case. This practice can alleviate significant financial and procedural headaches down the road for any practitioner. One of the simplest ways to start is by conducting a judgment search on the Minnesota Judicial Branch website. This will immediately inform the attorney as to whether there are any judgments against the potential client, and will also give the attorney insights into the potential client’s legal history. If there are judgments against the potential client, it is important to realize that the party in whose favor the judgment was rendered may have priority over all other creditors, including future attorneys. The statute states that “an attorney has a lien for compensation . . . from the commencement of the action or proceeding, and, as against third parties, from the time of filing the notice of the lien claim, as provided in this section.” Therefore, an attorney’s lien is subject to the claims of third parties with perfected liens (recall that a perfected lien has priority over a non-perfected lien). This scenario becomes particularly complicated when the attorney would be compensated on a contingency basis. If the potential client wins their case, the contingency fee that the attorney is entitled to could easily be eaten up by a previous judgment creditor. It is therefore important to consider accommodating such risk into the representation agreement.
In light of the above-mentioned complications, another step in the client screening process ought to include a UCC search on the Minnesota Secretary of State website. This will allow the attorney to determine whether the potential client has creditors who have perfected their liens; giving them priority over other creditors, including attorneys. As mentioned before, if there are creditors who have priority, there is a good chance that any proceeds from the client’s lawsuit will first get paid to the perfected creditors. That being said, it may be possible to negotiate with perfected creditors in order to ensure that the attorney is properly compensated before perfected creditors take their portion. After all, the attorney’s representation of the potential client could be the perfected creditor’s only shot at getting paid.
B. Accepting the Case & Signing a UCC Security Agreement
Once the attorney has done her due diligence on the status of the potential client, and is satisfied with her findings, she may proceed with accepting the client’s case by entering into a representation agreement. If, however, the attorney is still a bit apprehensive about the client’s financial accountability, it may be wise to consider having the client enter into a UCC security agreement. The consideration is both strategic and defensive. Under the statute mentioned above, an attorney’s lien will only attach to “money or property involved in or affected by any action or proceeding in which the attorney may have been employed.” Therefore, the lien will not attach to other legal fees or other property not involved in the action or proceeding. This loophole, however, can be easily closed by having the client sign a UCC security agreement. A security agreement is a contractual pledge of collateral by a debtor to a creditor; enabling the attorney to obtain a lien on property/collateral not covered under the attorney’s lien statute. This step, though nontraditional, can help protect against the incomplete coverage of the statute.
After entering into such a security agreement, the attorney should make no delay in filing the UCC security agreement with the Minnesota Secretary of State. This ensures that the security agreement is properly perfected; a prerequisite for obtaining priority over other creditors who might assert claims later. Just like we mentioned earlier, filing with the Secretary of State will serve as the attorney’s announcement to the rest of the world that they have a first priority position over other creditors or attorneys who might show up later. Note, however, that depending on the results of the UCC search on the Secretary of State’s website (one of the steps in the client screening process), the client’s property may already be secured by other perfected creditors. Be wise; don’t claim a security interest in collateral that is already claimed by a secured party.
C. Perfecting the Attorney’s Lien
After the client has signed the representation agreement and, if applicable, the UCC security agreement, the attorney should proceed to perfect the attorney’s lien in the money or property involved in the action (for clarity, please note that if the client signed a UCC security agreement, the attorney will be perfecting two liens: (1) the lien on collateral described in the UCC security agreement (property not involved in the action – described above), and (2) the attorney’s lien on property involved in the action). Subdivision 2 of Minn. Stat. 481.13 describes the process for perfecting the attorney’s lien. If the attorney is claiming a lien on the client’s interest in real property (real estate) involved in the action, the attorney must file a notice in the applicable county recorder’s office of her intention to claim a lien on the property involved. This should be done in the county in which the property is located, and should also be noted on the certificate of title for the property. Following satisfaction of this requirement, the attorney must deliver a written notice of the lien to the property owner within 30 days of filing. Failure to provide such notice will render the attorney’s lien void.
If an attorney wishes to claim a lien in the client’s personal property involved in the action (money, possessions, etc.), the statute states that the filing requirements are identical to those for security interests. This means that the attorney must file a UCC financing statement with the Minnesota Secretary of State’s Office; the same process for perfecting the UCC security agreement discussed above. This form, easily downloadable from the Secretary of State’s website, requires the name of the client/debtor, the name of the secured party/attorney, and an indication of the collateral covered by the security agreement. The collateral covered will be the personal property of the client involved in the action (whether it be money, possessions, or some other ownership interest). It is important that the attorney review the laws pertaining to security agreements to ensure that collateral is properly described in the UCC financing statement.
After the attorney has perfected the necessary liens in the client’s property interests, the attorney is in a good position to be able to recover property from the client should they decide not to pay their legal bills. The act of perfection ensures that the attorney will not be in an inferior position to other creditors, and will give the attorney a great deal of power in the recovery process. If the client has not paid their bill, or has only partially or inconsistently paid their bill, the attorney is able to execute upon their lien by repossessing the client’s property. The attorney’s execution is covered by chapter 551 of the Minnesota Statutes, and provides a good explanation of how the process works. Specifically, section 551.04 sets forth the general rules and procedures for the attorney’s execution. Though the process is said to be “summary” in nature, the procedure is a bit tedious, and should be followed carefully. In general, however, the process is similar to other execution techniques; with no more than $10,000 being recoverable by a single execution notice. After the attorney obtains a writ of execution from the court, noting the types of property not attachable by the writ, the execution levy (repossession of collateral) can be carried out by the proper authority.
The law does not favor those who neglect to pay their bills. Quite the contrary, the law provides numerous provisions that allow those who are owed money the ability to take steps to obtain what is owed to them. These procedures can be quite effective, and are usually not pleasant for the debtor. Furthermore, the individuals who typically know these procedures best are the attorneys themselves. It should come as no surprise, then, that choosing to not pay your attorney will, in the end, not bode well for you. Therefore, the take-home message remains the same: pay your bills!